TelcoTV Operators, It?s All About Price

The Background

For many incumbent telcos, marketing and advertising activities were never a strategic priority until deregulation opened the market to new competitors. Before that time, US telcos were monopolies protected by local, state and national regulations. In such an environment, strategic differentiation was of little concern and ?marketing? efforts had more to do with public relations than competitive positioning.

The Emergence of the Multiple Service/Converged Service Operator

If deregulation was the first crack in the telco?s protective dam, technological innovation opened up the flood gates. Using IP and digital technologies, a variety of service providers (both facility- and non-facility-based) could now reach the end-user and offer the very same kinds of service the incumbents once uniquely offered. For example, cable companies could add voice services to their PayTV and high-speed Internet services, and telcos could add PayTV services to their current mix of high-speed Internet and telephone services. Both companies, then, could offer the ?triple-play? package, the centerpiece of the converged residential service model. This meant that incumbent single-service providers were now multi-service competitors, and that telcos would now compete head-to-head with cable operators.

Today virtually every US telco is involved in deploying some form of TV service, mostly in markets where cable and satellite already enjoy strong presence and have established service relationships. TelcoTV providers will thus find themselves entering mature, well-saturated markets with perhaps two entrenched competitors who enjoy well-established brand presence among the subscriber base. When entering such markets, gaining mindshare and establishing competitive differentiation is absolutely critical. Marketing must take precedent over technology; the message must become more important than the means.

Focus on the Message, Not the Means

It has been my experience that a lot of marketing executives employed in the technology and communications industries are displaced engineers who were ?promoted? to the position during company reorganizations and staff shuffles, a HR ?dance? that occurs quite often in these industries. I have nothing against engineers ? in fact, I happen to call many of them my close friends and they?re highly-intelligent, motivated folks. However, they tend to bring an engineering mindset to marketing tasks. You may recall how both cable and telcos initially marketed broadband in the early days: it was about megabits and throughput, not about quality of service and improved experience. In other words, the messaging focused on the technology, not the benefits that such technologies may offer to the consumer. Market spaces such as home networking are running into the same problem: that is, how to communicate important differences without reducing the message to technological jargon?

Example: Verizon?s FiOS TV Service

For US TelcoTV operators, this is already proving problematic. For example, Verizon?s residential fiber service is called ?FiOS? (a lousy name for a next-gen service intended to blow away the competition, not to mention it says nothing about what the service does for the end user). Of course, Verizon would argue that the sub-text tells the story, that the FiOS message is focused on end-user benefits. The FiOS TV website speaks for itself. The very first line message you see (in big red letters) reads:

?Realize the full potential of your TV with fiber optics.?

The phrase ?fiber optics? is presented in the first line and Verizon seems to think that it?s presence somehow communicates ?better TV service? ? this despite the fact that most consumers have no idea what the hell ?fiber optics? means or why it results in an improved TV experience. In other words, the message is already lost on most consumers and we haven?t gotten beyond the first line.

But just in case readers are a bit foggy about all this, Verizon follows with this sub-text:

?Ready to experience television on a whole new level? Then tune in to Verizon FiOS TV. Fiber optic power lets us delver a 100% digital picture, room shaking sound and so much more. Once you?ve got FiOS TV, you?ll never go back to cable or satellite.?

The text goes on to list several features including (in order) 100% fiber optic network, on-demand, HD, dual-tuner PVR, top premium channels, and international channels.

Now imagine you?re a consumer viewing this messaging. The ?key? benefit (if judged by the order of the listings) is the ?100% fiber optic network? ? again, this means nothing to ordinary consumers. Next, there is laundry list of services that are striking similar to what my cable or DBS operator already offers me. 100% digital picture? Not unique. Room-shaking sound? Isn?t that a product of my home entertainment system (my AV receiver and speakers)? Again, not unique.

Just to be clear, I?m not targeting Verizon; this is a problem that TelcoTV operators in general will face. Verizon simply provides a great example of how residential telcos continue to focus market messaging on technology and fail to provide a clear explanation as to why this new technology is so cool that I should switch from my current PayTV service (which is indeed what they are asking me to do ? this is a market defined by cannibalization, not converting non-believers). Yes, these new technologies can be used to capture the imagination of the consumer (if properly articulated), but more needs to be added to the equation if you want them to switch from their current PayTV provider to a TelcoTV service.

The Bottom Line ? It?s All About Cost

So if the features are pretty much the same as those offered by cable and DBS operators, and the technology cannot in-and-of-itself convince customers to sign up for the service, what will? What is the key benefit that will generate sufficient enthusiasm among current PayTV subscribers that they will jump ship to a new TV service offering?

Lower monthly costs ? pure and simple. Consumers will sign up for TelcoTV services if they can get the same services offered by their current PayTV provider but for a lower monthly cost. Forget about focusing on new technology (?fiber optics?) or trying to position your ?digital services? as somehow superior to those offered by your competitors. When entering mature TV markets, the agenda should be to display a reasonable degree of service parity and focus on cost savings.

Yes, emphasizing cost advantages can come back to haunt an operator when the competition responds in kind. However, as the new kid on the block, TelcoTV operators should avoid focusing on technological advantages (which from a TV viewer?s perspective have no inherent value) and instead focus on creating compelling bundles of services and monthly cost savings.

TDG?s latest report, Receptivity to TelcoTV among PayTV Subscribers, features April 2006 interviews with more than 1,500 US Internet households and PayTV subscribers. The surveys focused on consumer satisfaction with current PayTV providers, likelihood of switching PayTV providers in exchange for specific levels of monthly cost savings, as well as proclivity to sign up for a Telco-TV ?triple-play? bundle at various levels of cost savings.

For more information about this report or any of TDG?s IPTV or TelcoTV research, please visit our website at http://www.thediffusiongroup.com/.

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